OPINION

PROGRESSIVE PROMOTIONS

The times they are a-challengin’ – which makes choosing the right approach to pricing and promotions more crucial than ever, according to the latest whitepaper from the KPMG/Ipsos Retail Think Tank.

www.retailthinktank.co.uk

BUYING AND MERCHANDISING FEELS LIKE IT’S OPERATED THE

SAME WAY FOR A THOUSAND YEARS

Retailers may feel that they have little choice but to slash their prices to hold on to customers as the cost of living crisis continues to hit household budgets. However, with their own inflationary pressures to contend with, this approach will only damage their margins and could even do long-term harm to their brand’s reputation.

The ongoing cost of living crisis sent consumer confidence plunging to a record low in September. While the Government’s freezing of the energy price cap at £2500 is expected to curb inflation in the near term, household bills remain high, and the early end to the utility price freeze means that from April 2023, inflation will once again be at the mercy of swings in wholesale gas prices.

The rise in mortgage rates has left homeowners nearing the end of their fixed-rate mortgage deals facing sharp increases in their monthly repayments. This has increased the risk of mortgage arrears and repossessions and will cause a big reduction in households’ disposable income.

All of this will make for a challenging trading environment in the run-up to Christmas – where staying afloat, let alone achieving growth, will feel like an uphill struggle for some retailers.

Profit growth in the current market might feel impossible for many retailers in Q4, especially those in the non-essential sector. Maureen Hinton, group retail research director, GlobalData, comments: “Demand is under huge pressure because of rising household expenses and falling consumer confidence, and this is hitting discretionary spend the hardest. The priority is essentials, and the biggest priority is food, as we all must eat. Nonfood, on the other hand, is the most vulnerable to falling demand.”

At the latest quarterly meeting of the KPMG/Ipsos Retail Think Tank (RTT), members discussed why a data-driven approach to pricing and promotion was even more important in the current climate, and looked at the steps retailers could take.

But rather than engaging in a race to the bottom on pricing, members agreed that an intelligent pricing and promotion strategy could help retailers to both protect their margins and build longer-lasting relationships with their customers.

At the last quarterly meeting, they looked at the importance of using customer data to understand demand and deliver personalised experiences with relevant offers, deals and incentives.

A challenging economic outlook RTT members highlighted the challenging trading conditions retailers are operating in currently due to high inflation and interest rate hikes.

Ruth Gregory, senior UK economist, Capital Economics, says: “With inflation set to rise to a peak of 10.8% in April and to remain elevated in 2023, inflation will weigh heavily on households’ real incomes in 2023 by a huge nine percentage points (ppts). Some of the pain for households from rising inflation will be dampened by the Government’s energy price support and by wages rising further. But households’ real incomes still look set to fall by a large -1.5% in 2022 and -2.5% in 2023. The latter would be the largest annual fall since records began in 1955.”

Despite the bleak economic outlook, the RTT believes that growth is possible as the world returns to normal after two-and-a-half years of Covid-related disruption. During this time, the retail winners and losers were primarily split between the essential and non-essential categories – now the victors within each category are starting to emerge once again.

In this climate, pricing and promotions management is now one of the most important, and historically overlooked, levers for growth. Indeed, KPMG analysis estimates there’s around $200b left on the table globally from a lack of pricing and promotions management.

Pricing and promotion strategy – still in the dark ages? The RTT notes that pricing and promotion has undergone the ‘least transformation’ compared to other

areas of the business, with decisions driven too much by supplier, not consumer, demand, and without clear customer insights.

Paul Martin, UK head of retail, KPMG, says: “What’s astonishing is that many retailers often don’t have a senior person with cross-functional responsibility solely in charge of pricing and promotion strategy – it’s often done on gut feeling. They have targets with suppliers but they aren’t always retrospectively reviewed, nor are suppliers penalised or rewarded for delivering against a performance target.

“Compared to real estate, finance, HR and store operations, buying and merchandising feels like it’s operated the same way for a thousand years. Price and promotional management is an immature discipline – yet there are sophisticated solutions out there that would help retailers understand who they’re interacting with and become more scientific with pricing and promotions.”

His views are shared by Ruth Gregory, who adds: “Involving pricing intelligence to tailor increases according to price sensitivities will also be crucial to building a more targeted approach to customers.”

Is growth possible? Nick Bubb, retailing consultant, Bubb Retail Consultancy, notes: “An inflationary-driven business environment need not be unhelpful to growth in retailing profits, if gross margins can be maintained by fully passing higher product supply costs on to the consumer and if sales grow at least in line with the rise in operating costs.

“The problem the UK sector faces is that it is hard to fully pass on higher prices when the consumer is under such pressure from the surge in energy costs and the cost of living, whilst sales volume declines are eating into the topline benefit of higher inflation, as the hard-pressed consumer seeks to make cutbacks. This was evident even before the financial turmoil unleashed by the disastrous mini-Budget on September 23rd, as both retail sectors were already underperforming badly. They are both now running about -40% down in 2022 to date.”

However, members believe that growth is possible if retailers adapt their existing models in order to

take an intelligent approach to selling and customer retention (photo courtesy iStock/diego_cervo) With both the food and non-food sectors competing for squeezed consumer spend, it’s crucial to

protect themselves from inflation and customers from price increases. They agreed that retailers should put a focus on growth in profitability, not revenue.

James Sawley, head of retail and leisure, HSBC UK, agrees that the economic conditions are difficult – yet he believes the most agile retailers can still achieve growth: “High labour and fulfilment costs, and a drop in the value of sterling, have created strong headwinds for non-food retail, particularly online.

“In this climate, many retailers may have to shrink to survive by rationalising their product range and only buying products that are true to their brand, reducing the need to discount, and aligning cost base accordingly. If they take a longer-term view, and hedge their currency risk, they could gain an advantage by protecting customers from market volatility – become smarter about buying, design and pricing more scientifically.”

Despite this, lower business rates could provide a much-needed boost for retailers, offering greater flexibility in the future for pricing and promotion strategies. Jonathan De Mello, founder and CEO, JDM Retail, says: “Business rates have spiralled out of control over the past five years since the last revaluation and, at this point, are completely out of kilter with rents. The forthcoming 2021 revaluation will correct this, and will certainly be welcomed by retailers.

“Whereas costs such as staffing, utilities and service charge have all risen considerably this year – and will rise further in 2023 - rates are linked to rents, which have fallen by around -30% for retail premises across the UK between 2019 and 2021. Due to the Government’s desire for ‘downward transition’, retailers won’t see the benefit of these rates reductions immediately, but this reduction over the course of the next three years will go some way towards counteracting higher costs across the rest of the store P&L.”

Playing the long game While pricing and promotion has traditionally focused on short-term tactics, such as ‘buy-one, get-one free’, in the current environment the RTT believes that a long-term vision is needed, and simply lowering pricing is damaging to both margins and brand reputation.

Martin Newman, ‘The Consumer Champion’, says: “The German discounters are value players, it’s part of their value proposition and they’re the natural place to go for people wanting low prices. However, if that hasn’t been your brand promise for the past five or 10 years, simply switching to a value-based proposition unlikely to have the desired impact and continued low pricing could be far more damaging in the long run.

“A relentless focus on building customer lifetime value (CLV) will help retailers to be more strategic in meeting customers’ needs – for example, offering a discount in exchange for bringing in old electricals and fashion to be recycled. This could help position the brand as a leader in conscious consumption, building a reputation that lasts beyond the immediate cost of living crisis.”

Members also agree that the FMCG sector needs to move onto a more long-term approach towards pricing and promotions, driven by longer-term trends in consumer demand, not by supply-side availability.

Mike Watkins, head of retailer and business insight UK, NielsenIQ, says: “Delivering a demand-driven, long-term approach to pricing is dependent on a better understanding of the consumer. Brands and retailers that can find the balance between price increases and effective promotions to create the most efficient pricing strategy will benefit. A focus on everyday low prices and fewer short-term promotions will be how retailers generate growth where FMCG volumes are falling and shoppers are putting fewer items in their shopping baskets.”

Members also point out that the German discounters are leading the way in creating customer lifetime value (CLV), despite being known for their low pricing. Martin Hayward, founder, Hayward Strategy and Futures, adds: “One new loyalty scheme is now outplaying some of the more established programmes. What they’ve done is come up with an ‘accelerometer’ where the rewards get bigger the longer people stay with them.

“This highlights the challenges for retailers to align price and promotion strategies with their brand values, helping them to develop long-term relationships when it can be easy to slip into short-term mindsets. This reward programme is a great example of how to lock in customer loyalty while protecting brand values, in contrast to many schemes which offer the same small rewards regardless of how much customers spend.”

A data-driven approach to pricing and promotion Pricing and promotion will only be a vehicle for growth if retailers are able to use their data effectively to deliver personalised customer experiences – including deals and offers relevant to them. This will not only drive sales at this crucial time, but also help to build lasting loyalty.

Members point out that retailers need to understand how consumers’ needs and priorities are changing due to the cost of living crisis, and adapt their offer accordingly. Joe Marshall, head of customer experience and channel performance, Ipsos, says: “Our data shows that an increasing proportion of customers view price as being more important than ESG issues due to the rising cost of living.

“The economic picture is changing so quickly at the moment, so retailers need as much insight into the latest data and consumer requirements in order to make intelligent and informed decisions on pricing.”

Retailers need to continue to invest in connected IT systems in order to capture and make sense of their data and break

AN INFLATIONARY-DRIVEN BUSINESS ENVIRONMENT NEED NOT BE UNHELPFUL TO GROWTH IN RETAILING PROFITS

down silos between departments. This will allow them to drill down into the detail of what consumers really want, so they can determine the tipping point on pricing and identify customer segments where convenience, rather than cost, is the big motivator.

Paul Martin says: “If a family has a food budget of £30 per week, it’s all about value, because any rise – even a jump of 4p in the price of pasta, for example – may mean they switch to a discounter. A more affluent customer, on the other hand, might be more concerned about convenience and getting the right products than price. If some of those products aren’t available when they place an online order, it’s an opportunity to direct them towards alternatives, such as their nearest store.”

Members agree that the person responsible for pricing and promotion strategy should have analytics in their background so they can build a team and develop systems capable of delivering real insights.

The takeaways As the sector heads towards Christmas, the challenges for retailers are clear. The Retail Health Index (RHI) forecasts a drop in performance – the biggest golden quarter decline since 2011 – as consumers feel the impact of higher energy bills more acutely and interest rates continue to rise.

What’s certain is that retailers need to move away from short-term thinking, where the only solution is to cut prices to impossible levels. Instead, they need to understand their customers and serve them in a way that’s relevant to their lives. To optimise their pricing and promotion strategies, and increase CLV, retailers should use readily available technology to break down data silos and derive meaningful insights.

What this strategy looks like will depend on what the data tells them, and it will be different for every retailer. Some might refine their loyalty programmes, rationalise their product range, roll out sustainability initiatives, or focus on keeping prices low.

The RTT believes that pricing and promotion has undergone ‘the least transformation’ compared to other areas of the business. But, done right, it’s also a real opportunity for retailers to become leaders in the field and unlock their share of the potential $200b available to them

MADE TO LAST?

In the lead-up to and wake of its administration, commentators have been quick to point out the weaknesses in Made.com’s operating model – but online furniture retail is far from dead, argues Jonathan Holmes, the founder and CEO of online interior marketplace LuxDeco …

WITH SUCH AN INDUSTRY GIANT GOING INTO ADMINISTRATION,

WHAT DOES THAT MEAN FOR THE DIGITAL HOMEWARE BUSINESS AS A WHOLE?

By JONATHAN HOLMES www.luxdeco.com

(photo courtesy 123RF/photoschmidt) adverse conditions than others, says Jonathan Some online businesses are better equipped to weather

The recent news about Made.com has shocked many of us. Valued at more than £700m last year, their collapse could be regarded as one of the most high profile ‘dot com’ retail crashes of the last few years, and is a sad end to an otherwise thriving and hugely popular company.

It’s a shock as, much like LuxDeco, Made.com experienced significant growth through Covid-19 as people spent more time at home. They, alongside almost every homeware business, faced many of the same challenges, such as a compromised supply chain, quality issues and long delays for customer orders.

With such an industry giant going into administration, what does that mean for the digital homeware business as a whole?

In this new market, considering overall retail trends, a shift in consumer behaviour and softer trading periods, it is clear that interior businesses are having to evolve to compete for space.

Ultimately, online furniture retail is far from dead. But how?

LuxDeco has been built to operate predominantly on a stock-light model. This means that we can offer a huge catalogue without tying up high-cost inventory and associated high-cost warehousing, a route that we believe gives us a long-term competitive advantage and provides us with a more sustainable path to profitability.

As a mark of the success of this model, this year we are celebrating our 10th anniversary, a huge milestone.

Whilst it undoubtedly has its challenges, our model helps us to avoid the existential risks that come with buying large quantities of stock. Instead, we use our capital to invest in the technology and supply chain, to bridge the gap between the delivery times and customer experience.

This has led us to offer our customers some of the biggest homeware brands in the world, alongside global artisans and craftspeople.

Fundamentally, LuxDeco operates in a very different market sector from Made.com. Whilst their core audience is the highly competitive mass market, LuxDeco is aimed at high-net-worth (HNW) consumers, who are considerably more immune to the effects of global economic challenges.

This approach is by design. LuxDeco is a company that was founded in a recession and is, fortunately, designed to be recession-proof. In times of economic crisis, there are two ways to view things – as either a risk or an opportunity. I have always firmly believed in the latter. The vision of LuxDeco has always been big, and the opportunity that lies ahead of us could allow the business to truly dominate an emerging sector

IS YOUR PR SEO SAVVY?

Despite huge shifts toward digital content consumption, when it comes to PR, many still consider their product being featured in a printed glossy magazine or newspaper to be more valuable than if the same article ran online – but brands who view PR in this more traditional way may be missing crucial opportunities to strengthen their online presence, grow their brand and, ultimately, improve their SEO, warns Press Loft’s founder, Nicola Snell …

WHAT IS EASILY FORGOTTEN IS THAT

SOCIAL MEDIA SITES ARE SEARCH ENGINES WITHIN THEMSELVES

By NICOLA SNELL www.pressloft.com

PR and SEO go hand in hand – mostly because they fit under the same ‘earned media’ umbrella. This means that, unlike advertising, it’s not about you shouting about how good your brand is, but a journalist, as a trusted third party, telling their audience how great your brand is.

Print press features are a fantastic way to build brand awareness and authority. However, when they’re published online, they have the extra benefit of helping to boost your search engine rankings too. This can result in dramatically higher ROI and allimportant sales – and this is why digital PR should be an important part of an overall communications strategy for brands today.

Link it up Even though search engine optimisation (SEO) has been spoken about for many years now, the specific rules and measurements used by big search engines to define it remain a mystery. One thing we do know, though, is that backlinks (a link on a site that goes to a page on your site) from high-quality websites and digital platforms will help search engines see you as an authority in your space.

Simply put, the more quality backlinks you secure, the higher up your company website sits on Google’s search results pages, the goal being to appear as high up on page one as possible. Google looks for keywords in these articles, and their algorithm then associates your company with those topics and, over time, you will get higher organic search results. For example, if you are included in an article on dining chairs in The Times online, Google says your website must be associated with dining chairs, and your ranking related to this search will improve over time.

The more quality dining chair articles you are in, the higher your ranking for keywords associated with dining chairs. This then leads to higher visibility on Google, more organic traffic and, all importantly, more sales from this organic traffic source. This is where digital publications, which can link

says Nicola (image courtesy 123RF/sophonk) Quality backlinks help lift a website’s Google ranking,

directly to products, have the edge over printed ones.

Quality over quantity When the benefits of SEO first became apparent, many brands set out to create as many backlinks as possible, which led to a huge rush of spammy backlinks being created. Google swiftly caught up and changed its algorithm to blacklist poor links and heavily favour quality backlinks, therefore ranking them more highly. This further emphasised PR’s SEO power, and PR started to see a huge resurgence.

The easiest way to determine if a link is high quality is to check the site’s Domain Authority (DA). DA is a scoring system created by Moz.com, and refers to a search engine ranking score between 1-100, which helps to determine how successful a site is seen to be from a search engine perspective. Moz has a free tool on its site to help you find out what the DA of a site is – ideally, you want features and coverage in online publications and blogs with a DA above 30.

Relevancy is key in SEO, as it is another metric search engines value, so in addition to a good DA, you will want to be sure that any publications or sites that you target for PR are wellaligned with your brand and product. Look for titles and creators that have a readership with similar demographics to your customers.

Social = search engine When you think of search engines, I imagine it’s Google (and perhaps Bing) that comes to mind? What is easily forgotten is that social media sites are search engines within themselves – in fact, after Google, many experts count Youtube and Pinterest as the second- and third-largest search engines.

Whilst the big players have stayed pretty tight-lipped about the impact social following has on SEO, a 2018 study by Hootsuite showed that articles shared on social media saw a +22% boost in terms of SEO impact. So, outside of just the digital article itself, it’s worth considering the additional sharing a publication may do across their social media sites, or the journalist’s own personal account. These posts would be great exposure to an additional audience, and the further SEO strength it provides could result in more views and, in turn, more sales for you.

All in the details Backlinks are just the tip of the iceberg when it comes to SEO, which

BACKLINKS FROM HIGH-QUALITY

WEBSITES AND DIGITAL PLATFORMS WILL HELP SEARCH ENGINES SEE YOU AS AN AUTHORITY IN YOUR SPACE

is a very technical field. However, encouraging links isn’t the only thing you can do to help boost your ranking when doing digital PR. Search engines work by ‘crawling’ sites and content to determine their quality, value, and industry relevancy.

Using keywords throughout your press releases and articles is a great way to help search engines see your content as high value. Some journalists may use whole sentences from your release in a final article, so having them be SEO-friendly from the beginning will only help to strengthen any piece you are included in. Using the dining chairs example, you may also want to include the phrases ‘seating’ and ‘entertaining’, as well as make clear references to its characteristics, such as ‘oak furniture’ or ‘painted wood furniture’.

Another often-overlooked place that can help you strengthen your PR is imagery. Google will also crawl image captions to better determine what they are, so ensure the filenames of any jpeg or png images you are providing to press or hosting on your press office are carefully and clearly labelled before they are uploaded or sent anywhere.

If you’re ready to start your digital PR journey but are still not sure where to begin, why not take advantage of our free 60-day trials of Press Loft for Furniture News readers? Simply visit pressloft.com/furniturenews

AN UNMISSABLE OPPORTUNITY

January’s issue is an incredibly effective advertising platform Bursting with quality content and new product, and with extra copies distributed at the JANUARY FURNITURE SHOW and INDX FURNITURE, it really is the perfect vehicle for any business looking to make its mark in the new year. The issue will feature:

• January Furniture Show preview • INDX Furniture preview • Delivery fulfilment • Buying groups and associations We’ll also present our monthly look at the latest in BEDROOM, DINING, LIVING and TRADE SERVICES. JFS exhibitors should also take note of the official preview magazine and show catalogue!

Want to be part of the furniture trade’s favourite read?

Contact Sam Horscroft on 07764 650655 or email sam@gearingmediagroup.com

OVERCOMING ADVERSITY

The January Furniture Show has been a must-attend date in the diary of professional retail buyers for the last 32 years, writes show manager James Howard – so what’s in store for 2023’s event, and what role will its international exhibitors play?

By JAMES HOWARD www.thefurnitureshows.com/january

The strong heritage of the January Furniture Show, and the reputation it has forged, has made it the only destination for industry colleagues and suppliers to come together to discuss their upcoming year and recent challenges, or to simply just mingle and connect with one another.

In recent years, the challenges facing the industry have not gone unnoticed – most notably with the hit of Covid-19 and the implementation of Brexit restrictions causing both brands and buyers to pivot their way of working.

My team and I have noticed that our exhibitors and retail buyers are having to navigate this uncertain market, and working together to find a solution has never been more important, with the supplier side seeing more caution in the orders being placed, retailers having to source for the next buying seasons on reduced budgets, and import and export struggles, to pick out just a few of the current concerns

These observations have made us more aware of how important it is to unite the industry under one roof and show resilience together. As JFS takes place at the start of Q1, we have found this is the perfect time to discuss concerns, showcase products, and network with every corner of the industry to face these challenges head on.

As one of the major trade shows in the furniture world, JFS is on a continuous quest to support and help the growing community we have built. We thrive on finding ways to navigate these waters and come up with longterm solutions. We have always looked to the industry to be our light in these uncertain times, and we hope that we can be that beacon for you now.

With a keen focus on improving our international offering, with both an outreach to new international brands and facilitating visitors attending from abroad, the show is continuing to diversify. As the challenges of Brexit continue to arise, being able to converse with industry colleagues you might have never met elsewhere is more important than ever, as you will be able to exchange ideas and tips on how best to overcome these new challenges.

I am happy to announce that JFS will also see the introduction of international pavilions, with companies from Vietnam, Portugal and Poland exhibiting at the show. These pavilions are an excellent way for industry insiders to create this connection with countries and companies they might have not seen previously.

As these uncertainties continue to arise, I assure you that the January Furniture Show will continue to strive to be a place where the furniture community can come together to connect and network, as well as being a hub of new ideas and inspiration for the future

WE HAVE ALWAYS LOOKED TO THE INDUSTRY TO BE OUR LIGHT IN THESE UNCERTAIN TIMES, AND WE HOPE THAT WE CAN BE

THAT BEACON FOR YOU NOW

INDUSTRY PARTNERS

Young Furniture Makers exhibition.

THIS MONTH, WE’RE ASKING …

Shane Harding (Highgrove Beds) They’re all often enjoyable in the UK for different reasons – meeting great people, winning awards and seeing positive reactions to new product launches – but from a marketing trends point of view, in my opinion, nothing really beats Milan

Mark Gannon (Sofa Source) Our first international show in Singapore (IFFS 2011) – a design element and a beautiful city

Deirdre Mc Gettrick (ufurnish.com) I really enjoyed the January Furniture Show in April this year, meeting all the suppliers and being inspired by the high quality of the stands really stood out. The effort of the suppliers was second to none – I could have bought lots of furniture just for my own home, it was so beautiful! The show was supplemented by relevant content on stage. A must for anyone in the industry

Neil Barker (Barkers Furniture) One of the Minerva shows

Steve Reid (Simba Sleep) imm cologne 2017 – my first experience of seeing the breadth of the European offering in our category, and the broader home furnishing category. It really opened my eyes to the size of the market and the opportunity there

WHAT WAS THE MOST ENJOYABLE TRADE SHOW YOU’VE EVER ATTENDED?

Huw Williams (Toons Furnishers) I love the January Furniture Show, it has a great feel to it

Wendy Martin Green (Peter Green Furnishers) Many years ago, when I went to a the Bed Show, I discovered that although beds are perhaps one of the least visually interesting products we carry, technically they are very interesting. It’s what goes inside that counts, and that can vary, from man-made foams to naturally harvested fibres, and each one results in a product that may look the same but is quite different in the way it interacts with your body. Yes, the Bed Show is still one of my favourites! Jade Farthing (Haskins Furniture) The NEC January Furniture Show in 2007. It was the first one I attended with my dad, and it solidified my desire to be involved with the family business

Keiran Hewkin (Swyft) Milan wins, it’s just the next level, and dwarfs any of the other shows – plus the Italians just do everything better!

Tom Bayliss (Kettle Interiors) The VIFA show in Ho Chi Minh, 2019. Pre-Covid and the industry was buoyant, retailer confidence felt at its highest, and we had launched a plethora of new products which our customers, existing and new, loved. A fantastic show which provided not just results but the opportunity to build long-term relationships with our customer base

John Northwood (independent agent) Probably Heimtextil Frankfurt in 2010. I was with a new company, and it was the first time I had done the show. It also snowed heavily that week, which made getting to and from the venue interesting! Also, the stand theme was white, and we were all wearing white suits and pink ties!

George Sinclair (Nimbus Beds) Probably the first exhibition show I ever went to. I was so excited, everything was new and fresh (I suppose the novelty wears off!)

TAKE YOUR SEAT

Lebus set to impress at JFS

#399 December 2022

www.furniturenews.net

WE WANT TO HEAR FROM YOU!

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